More than 100,000 small businesses in Mass. face recession

Tuesday

Dec 30, 2008 at 12:01 AMDec 30, 2008 at 11:52 PM

The nation's crumbling economy has made it the most difficult time for businesses of all sizes since the Great Depression. But in Massachusetts, small business owners say they have managed - so far - to sidestep the ravages of recession.

Kaili Xu

The nation's crumbling economy has made it the most difficult time for businesses of all sizes since the Great Depression. But in Massachusetts, small business owners say they have managed - so far - to sidestep the ravages of recession.

Small business owners "are looking at things a little bit more conservatively," said Robert Nelson, Massachusetts district director at the U.S. Small Business Administration. "But for the most part, it's business as usual."

Massachusetts is literally a big small-business state. There are 126,300 firms with 19 employees or less. That accounts for more than a quarter of the state work force.

"Small businesses make up 85 percent of the companies in the commonwealth," said state Rep. Steve Walsh, D-Lynn, House chairman of the Joint Committee of Community Development and Small Business. "They really are a lifeline, so it's important that they continue to be healthy."

Tom Stewart, owner of Blossoms in Newton Highlands, said he pays $1,100 every month on health insurance for himself and his wife - the only two employees at the flower store.

"If they could reduce the cost of my health insurance, that would be a big plus," said Stewart. "You have to sell a lot of flowers to make $1,100 in profit to pay your health insurance."

But relief for Stewart and others may be on the way soon. State Rep. Karyn Polito, R-Shrewsbury, said the state's new health insurance law should make insurance more affordable for small businesses.

Other lawmakers have plans to help small businesses through the tough times.

State Rep. Jamie Eldridge, D-Acton, said he is trying to get work force development money to be spent on small companies, not just medium to large size businesses.

In the meantime, observers say many small business owners continue to survive - and in some cases - thrive in the hard times.

Interviews with small business owners found that while some are feeling the financial crunch as business slows, others have experienced remarkable growth through bad times.

Deb Larson, owner of Spascape Day Spa in Scituate said her 14-employee company saw a 40 percent increase in revenue over the year despite the churning economy.

She said their low-priced stimulus package is the major magnet that brings a lot of clients. Under the special offer, people can enjoy a half-hour massage, a half-hour facial, and steam room for $80.

"The price is lower, and people need to relax and take care of themselves, so they come to a spa," she said.

Like Larson, many small business owners have been preparing for the tough times with creativity and flexibility. They are able to re-evaluate the market timely, adjust their business model, and make quick decisions to draw consumers back.

"One of the benefits that small businesses have is that they are small," said Nelson. "They can adapt, and they can change things easier than a large business."

According to a report released this month by Babson College, 23 percent of the Bay State's businesses are classified as small businesses. That is 9 percent above the national average.

Experts said Massachusetts small businesses outperform those in other parts of the nation because of specific advantages, such as education, which feeds high technology and biotechnology companies.

Other factors that help them weather the recession include a stronger infrastructure, a well-educated work force and a very receptive climate for economic development. These elements filter down to keep other small businesses afloat.

Unlike larger enterprises, few small businesses advertise. Instead, they rely on word of mouth, said Mark Allio, director of the Boston regional office at the Massachusetts Small Business Development Center Network and the Minority Business Center at the UMass-Boston.

"A lot of the small businesses continue to have a lot of clients, because they have such good reputations within their communities," said Walsh.

Elpida Kosmidis, owner of Super One Hour Cleaners in Brighton, said her customers come back even after they leave the neighborhood.

Kosmidis said she has operated her business for 26 years, and sometimes acts like a mother to young girls who live in the community.

"Some of them don't know how to wash, then I teach them wash," she said. "I have a good personality. They love me. I love my customers, so I take care of customers very well. I treat my customers just like my family."

Though outdoing their counterparts in other states, Massachusetts small business owners still face a slew of challenges in the tumultuous economy, like difficulty getting loans.

The Federal Reserve recently reported that 75 percent of domestic banks have tightened lending standards to small firms and about 95 percent - up from 70 percent three months ago - say they are charging more interest for loans to small businesses.

However, for entrepreneurs with good credit profiles, this is an ideal time to leverage their investment.

"I called around to all the banks around Massachusetts that do SBA (Small Business Administration) deals, and they were all telling me that they have money to lend," said Nelson. "They are looking for small businesses to borrow."

But experts said there are small businesses that are struggling, especially those in industries that are more sensitive to rising costs, such as retailing, transportation and energy.

Industries that are based on people's "discretionary spending would be those harder-hit," said Bill Vernon, state director at the National Federation of Independent Business, the nation's leading small business advocacy organization.

During this challenging time, business owners also plan to spend less. They are in a defensive mode, putting off expansion plans until the future is clearer.

"At this point, small businesses are less concerned about growing and more concerned about retaining the employees they have," said Walsh.

The bad news is that small businesses will generate fewer jobs.

"Small business owners have reduced their labor force," said Dean Rizzo, executive director at Quincy 2000 Collaborative, the city's primary economic development corporation.

Vernon said the reluctance to hire new employees goes beyond payroll concerns.

"Clearly, the biggest issue for small businesses is health insurance and health care," he said. "I think we have to be very wary of new regulatory burdens on small businesses."

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